UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________

FORM 10-Q

_____________________

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                        

Commission File Number: 001-38683

_____________________

GUARDANT HEALTH, INC.

(Exact Name of Registrant as Specified in its Charter)

_____________________

Delaware	45-4139254
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3100 Hanover Street

Palo Alto, California, 94304

Registrant’s telephone number, including area code: (855) 698-8887

_______________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	GH	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 28, 2022, the registrant had 102,436,169 shares of common stock, $0.00001 par value per share, outstanding.

GUARDANT HEALTH, INC.

FORM 10-Q

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
		Page
Item 1.	Unaudited Condensed Consolidated Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Loss	6
	Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to the Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	55
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
	Signatures	59

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are based on our current expectations, estimates, forecasts and projections as well as the current beliefs and assumptions of our management, including about our business, our financial condition, our results of operations, our cash flows, and the industry and environment in which we operate. Statements that include words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “would,” “could,” “should,” “intend” and “expect,” variations of these words, and similar expressions, are intended to identify forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A,“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021, in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the U.S. Securities and Exchange Commission, or the SEC. While forward-looking statements are based on the reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as may be required by law.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Guardant Health, Inc., a Delaware corporation, and its consolidated subsidiaries, unless otherwise stated. 

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Guardant Health, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

	September 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	158,310	$	492,202
Short-term marketable debt securities	799,727		440,546
Accounts receivable, net	86,200		97,652
Inventory, net	63,047		30,674
Prepaid expenses and other current assets, net	23,565		53,052
Total current assets	1,130,849		1,114,126
Long-term marketable debt securities	156,741		698,034
Property and equipment, net	168,007		124,461
Right-of-use assets, net	178,747		189,443
Intangible assets, net	12,417		14,207
Goodwill	3,290		3,290
Other assets, net	51,728		60,938
Total Assets(1)	$	1,701,779	$	2,204,499
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,911	$	17,580
Accrued compensation	57,423		42,496
Accrued expenses	63,367		45,285
Noncontrolling interest liability	—		78,000
Deferred revenue	13,423		11,326
Total current liabilities	175,124		194,687
Convertible senior notes, net	1,136,748		1,134,821
Long-term operating lease liabilities	216,174		226,053
Other long-term liabilities	6,988		3,933
Total Liabilities(1)	1,535,034		1,559,494
Stockholders’ equity:
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021	—		—
Common stock, par value of $0.00001 per share; 350,000,000 shares authorized as of September 30, 2022, and December 31, 2021; 102,413,638 and 101,767,446 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively	1		1
Additional paid-in capital	1,716,075		1,657,593
Accumulated other comprehensive loss	(26,852)		(4,764)
Accumulated deficit	(1,522,479)		(1,007,825)
Total Stockholders’ Equity	166,745		645,005
Total Liabilities and Stockholders’ Equity	$	1,701,779	$	2,204,499

(1) As of December 31, 2021, the Company's consolidated balance sheet included $20.4 million of assets, that can be used only to settle obligations of Guardant Health AMEA, Inc., the consolidated variable interest entity, or VIE, and VIE’s subsidiaries, and $4.3 million of liabilities of the consolidated VIE and VIE’s subsidiaries, for which their creditors do not have recourse to the general credit of the Company. Guardant Health AMEA, Inc. is no longer a VIE, after the completion of the Joint Venture Acquisition on June 10, 2022. See Note 3, Joint Venture.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Guardant Health, Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Precision oncology testing	$	102,054	$	79,272	$	278,252	$	215,605
Development services and other	15,350		15,507		44,395		49,940
Total revenue	117,404		94,779		322,647		265,545
Costs and operating expenses:
Cost of precision oncology testing	39,434		29,665		104,493		78,142
Cost of development services and other	1,062		1,151		4,711		11,348
Research and development expense	100,017		70,968		267,229		190,200
Sales and marketing expense	80,370		50,228		218,405		132,282
General and administrative expense	41,121		50,055		126,068		166,366
Total costs and operating expenses	262,004		202,067		720,906		578,338
Loss from operations	(144,600)		(107,288)		(398,259)		(312,793)
Interest income	1,754		689		3,919		3,277
Interest expense	(644)		(644)		(1,933)		(1,934)
Other income (expense), net	(18,389)		(187)		(18,059)		(720)
Fair value adjustments of noncontrolling interest liability	—		—		(99,785)		—
Loss before provision for income taxes	(161,879)		(107,430)		(514,117)		(312,170)
Provision for income taxes	115		96		537		289
Net loss	(161,994)		(107,526)		(514,654)		(312,459)
Adjustment of redeemable noncontrolling interest	—		—		—		(2,300)
Net loss attributable to Guardant Health, Inc. common stockholders	$	(161,994)	$	(107,526)	$	(514,654)	$	(314,759)
Net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	$	(1.58)	$	(1.06)	$	(5.04)	$	(3.11)
Weighted-average shares used in computing net loss per share attributable to Guardant Health, Inc. common stockholders, basic and diluted	102,289		101,420		102,065		101,184

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Guardant Health, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(161,994)	$	(107,526)	$	(514,654)	$	(312,459)
Other comprehensive loss, net of tax impact:
Unrealized loss on available-for-sale securities	(2,062)		(513)		(19,348)		(2,097)
Foreign currency translation adjustments	(529)		(113)		(2,740)		(1,193)
Other comprehensive loss	(2,591)		(626)		(22,088)		(3,290)
Comprehensive loss	$	(164,585)	$	(108,152)	$	(536,742)	$	(315,749)
Comprehensive loss attributable to redeemable noncontrolling interest	—		—		—		(2,300)
Comprehensive loss attributable to Guardant Health, Inc.	$	(164,585)	$	(108,152)	$	(536,742)	$	(318,049)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Guardant Health, Inc.

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity (unaudited)

(in thousands, except share data)

	Three Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of June 30, 2022	102,186,856	$	1	$	1,703,832	$	(24,261)	$	(1,360,485)	$	319,087
Issuance of common stock upon exercise of stock options	51,338	—		347		—		—		347
Vesting of restricted stock units	175,444	—		—		—		—		—
Taxes paid related to net share settlement of restricted stock units	—	—		(4,340)		—		—		(4,340)
Stock-based compensation	—	—		20,639		—		—		20,639
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs	—	—		(4,403)		—		—		(4,403)
Other comprehensive loss	—	—		—		(2,591)		—		(2,591)
Net loss	—	—		—		—		(161,994)		(161,994)
Balance as of September 30, 2022	102,413,638	$	1	$	1,716,075	$	(26,852)	$	(1,522,479)	$	166,745

			Three Months Ended September 30, 2021
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of June 30, 2021	$	59,400	101,265,100	$	1	$	1,597,419	$	33	$	(809,388)	$	788,065
Issuance of common stock upon exercise of stock options	—		257,535	—		1,677		—		—		1,677
Vesting of restricted stock units	—		100,622	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		13		—		—		13
Taxes paid related to net share settlement of restricted stock units	—		—	—		(7,199)		—		—		(7,199)
Stock-based compensation	—		—	—		35,016		—		—		35,016
Other comprehensive loss, net of tax impact	—		—	—		—		(626)		—		(626)
Net loss	—		—	—		—		—		(107,526)		(107,526)
Balance as of September 30, 2021	$	59,400	101,623,257	$	1	$	1,626,926	$	(593)	$	(916,914)	$	709,420

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

	Nine Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	101,767,446	$	1	$	1,657,593	$	(4,764)	$	(1,007,825)	$	645,005
Issuance of common stock upon exercise of stock options	207,353	—		2,504		—		—		2,504
Vesting of restricted stock units	250,729	—		—		—		—		—
Vesting of common stock exercised early	—	—		8		—		—		8
Common stock issued under employee stock purchase plan	188,110	—		5,742		—		—		5,742
Taxes paid related to net share settlement of restricted stock units	—	—		(6,519)		—		—		(6,519)
Stock-based compensation	—	—		70,982		—		—		70,982
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs	—	—		(14,235)		—		—		(14,235)
Other comprehensive loss	—	—		—		(22,088)		—		(22,088)
Net loss	—	—		—		—		(514,654)		(514,654)
Balance as of September 30, 2022	102,413,638	$	1	$	1,716,075	$	(26,852)	$	(1,522,479)	$	166,745

	Nine Months Ended September 30, 2021
	Redeemable Noncontrolling Interest		Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
			Shares	Amount
Balance as of December 31, 2020	$	57,100	100,213,985	$	1	$	1,902,389	$	2,697	$	(606,592)	$	1,298,495
Cumulative effect adjustment for ASU 2020-06 adoption	—		—	—		(330,403)		—		4,437		(325,966)
Issuance of common stock upon exercise of stock options	—		629,246	—		7,065		—		—		7,065
Vesting of restricted stock units	—		719,128	—		—		—		—		—
Vesting of common stock exercised early	—		—	—		39		—		—		39
Common stock issued under employee stock purchase plan	—		60,898	—		5,401		—		—		5,401
Taxes paid related to net share settlement of restricted stock units	—		—	—		(82,157)		—		—		(82,157)
Stock-based compensation	—		—	—		124,592		—		—		124,592
Adjustment of redeemable noncontrolling interest	2,300		—	—		—		—		(2,300)		(2,300)
Other comprehensive loss, net of tax impact	—		—	—		—		(3,290)		—		(3,290)
Net loss	—		—	—		—		—		(312,459)		(312,459)
Balance as of September 30, 2021	$	59,400	101,623,257	$	1	$	1,626,926	$	(593)	$	(916,914)	$	709,420

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Guardant Health, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Nine Months Ended September 30,
	2022		2021
OPERATING ACTIVITIES:
Net loss	$	(514,654)	$	(312,459)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	25,793		16,181
Non-cash operating lease costs	21,394		17,782
Re-valuation of contingent consideration	4,195		1,845
Non-cash stock-based compensation	70,982		124,592
Amortization of debt issuance costs	1,926		1,922
Amortization of premium (discount) on marketable debt securities	3,366		9,546
Unrealized losses on marketable equity securities	13,230		—
Impairment of other assets	5,261		—
Fair value adjustments of noncontrolling interest liability	99,785		—
Other	23		8
Changes in operating assets and liabilities:
Accounts receivable, net	11,431		(7,445)
Inventory, net	(32,375)		(2,023)
Prepaid expenses and other current assets, net	28,387		(5,758)
Other assets, net	4,770		(3,226)
Accounts payable	17,752		6,939
Accrued compensation	14,927		10,558
Accrued expenses and other liabilities	14,034		10,484
Operating lease liabilities	(12,993)		258
Deferred revenue	4,052		(1,233)
Net cash used in operating activities	(218,714)		(132,029)
INVESTING ACTIVITIES:
Purchase of marketable debt securities	(238,601)		(334,082)
Maturity of marketable debt securities	398,000		627,110
Purchase of non-marketable equity securities and other related investments	(12,750)		(39,076)
Purchase of property and equipment	(67,460)		(50,410)
Net cash provided by investing activities	79,189		203,542
FINANCING ACTIVITIES:
Payments made on finance lease obligations	(53)		(129)
Proceeds from issuance of common stock upon exercise of stock options	2,505		7,065
Proceeds from issuances of common stock under employee stock purchase plan	5,742		5,401
Taxes paid related to net share settlement of restricted stock units	(6,519)		(82,157)
Joint Venture Acquisition	(177,785)		—
Tender offer issued in connection with the Joint Venture Acquisition and acquisition related costs	(14,236)		—
Payment of contingent consideration	(1,065)		—
Payment of offering costs related to borrowings on convertible senior notes	—		(784)
Net cash used in financing activities	(191,411)		(70,604)

9

	Nine Months Ended September 30,
	2022		2021
Net effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(2,740)		(1,193)
Net (decrease) increase in cash, cash equivalents and restricted cash	(333,676)		(284)
Cash, cash equivalents and restricted cash—Beginning of period	492,288		832,977
Cash, cash equivalents and restricted cash—End of period	$	158,612	$	832,693
Supplemental Disclosures of Cash Flow Information:
Operating lease liabilities arising from obtaining right-of-use assets	$	4,073	$	171,068
Supplemental Disclosures of Noncash Investing and Financing Activities:
Purchase of property and equipment included in accounts payable and accrued expenses	$	8,914	$	9,589
Issuance costs related to purchase of non-marketable equity and other related investments included in accounts payable and accrued expenses	$	—	$	346
Property and equipment acquired under finance leases	$	—	$	238
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	158,310	$	832,370
Restricted cash – included in other assets, net	302		323
Total cash, cash equivalents and restricted cash	$	158,612	$	832,693

The accompanying notes are an integral part of these condensed consolidated financial statements.

10

 Guardant Health, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.    Description of Business

Guardant Health, Inc., or the Company, is a leading precision oncology company focused on helping conquer cancer globally through the use of its proprietary tests, vast data sets and advanced analytics. The Company believes its tests can transform cancer care by unlocking insights that will help patients at all stages of the disease, including at its earliest, when it’s most treatable. For patients with advanced-stage cancer, the Company has commercially launched Guardant360 LDT and Guardant360 CDx, the first comprehensive liquid biopsy test approved by the U.S. Food and Drug Administration, or the FDA, to provide tumor mutation profiling with solid tumors and to be used as a companion diagnostic in connection with non-small cell lung cancer, or NSCLC. The Company has also launched the Guardant360 TissueNext tissue test for advanced-stage cancer, Guardant Reveal blood test to detect residual and recurring disease in early-stage colorectal, breast and lung cancer patients, and Guardant360 Response blood test to predict patient response to immunotherapy or targeted therapy 8 weeks earlier than current standard-of-care imaging.

The Company also collaborates with biopharmaceutical companies in clinical studies by providing the above-mentioned tests, as well as the GuardantOMNI blood test for advanced-stage cancer, and the GuardantINFINITY blood test, launched in September 2022, which is a next-generation liquid biopsy that provides new, multi-dimensional insights into the complexities of tumor molecular profiles and immune response to advance cancer research and therapy development. Using data collected from its tests, the Company has also developed its GuardantINFORM platform to help biopharmaceutical companies accelerate precision oncology drug development through the use of this in-silico research platform to unlock further insights into tumor evolution and treatment resistance across various biomarker-driven cancers.

In May 2022, the Company launched the Shield LDT test to address the needs of individuals eligible for colorectal cancer screening. From a simple blood draw, Shield uses a novel multimodal approach to detect colorectal cancer signals in the bloodstream, including DNA that is shed by tumors. In addition, with respect to Shield, the Company is working towards completing its prospective screening study, referred to as the ECLIPSE study, for the purpose of evaluating the performance of its Shield assay in detecting colorectal cancer in average-risk adults. The Company will expand into multi-cancer screening with its investigational next-generation Guardant SHIELD multi-cancer assay and presented data in April 2022 demonstrating the ability of next-generation Guardant SHIELD to accurately detect early-stage cancers and identify the tumor tissue of origin with high accuracy.

The Company was incorporated in Delaware in December 2011 and is headquartered in Palo Alto, California. In May 2018, the Company formed and capitalized Guardant Health AMEA, Inc., or the Joint Venture, in the United States with an affiliate of SoftBank Vision Fund (AIV M1) L.P., or SoftBank. Under the terms of the joint venture agreement, the Company held approximately 50% ownership and controlling interest in the Joint Venture. In June 2022, the Company completed the purchase of all of the shares of the Joint Venture, or the Joint Venture Acquisition, held by SoftBank and its affiliates, and issued a tender offer to purchase the Joint Venture's Class B common stock issued and issuable upon exercise of vested Joint Venture's stock options held by the Joint Venture's employees. Upon completion of the Joint Venture Acquisition and the tender offer, Guardant Health AMEA, Inc. became the Company's wholly owned subsidiary (see Note 3, Joint Venture and Note 11, Stock-Based Compensation).

2.    Summary of Significant Accounting Policies

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. The accompanying condensed consolidated financial statements include the accounts of Guardant Health, Inc., its consolidated Joint Venture (see Note 1, Description of Business and Note 3, Joint Venture), and its wholly owned subsidiaries. Other stockholders’ interests in the Joint Venture were shown in the condensed consolidated financial statements as noncontrolling interest liability before the Joint Venture Acquisition was completed. All significant intercompany balances and transactions have been eliminated in consolidation.

11

The Company believes that its existing cash and cash equivalents and marketable debt securities as of September 30, 2022, will be sufficient to allow the Company to fund its current operating plan through at least a period of one year after the date the accompanying condensed consolidated financial statements are issued. As the Company continues to incur losses, its transition to profitability is dependent upon a level of revenues adequate to support the Company’s cost structure. If the Company’s transition to profitability is not consistent with its current operating plan, the Company may have to seek additional capital.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the periods presented. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Estimates are used in several areas including, but not limited to, estimation of variable consideration, estimation of credit losses, standalone selling price allocation included in contracts with multiple performance obligations, goodwill and identifiable intangible assets, stock-based compensation, incremental borrowing rate for operating leases, contingencies, certain inputs into the provision for (benefit from) income taxes, including related reserves, valuation of non-marketable securities, among others. These estimates generally involve complex issues and require judgments, involve the analysis of historical results and prediction of future trends, can require extended periods of time to resolve and are subject to change from period to period. Actual results may differ materially from management’s estimates.

The severity of the impact on the Company's business for the remainder of calendar year 2022 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, and the impact of any variants of the virus, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to demand for the Company's products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted.

Unaudited Interim Condensed Financial Statements

The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations for the three and nine months ended September 30, 2022, and 2021, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2022, and 2021, the condensed consolidated statements of redeemable noncontrolling interest and stockholders’ equity for the three and nine months ended September 30, 2022, and 2021, and cash flows for the nine months ended September 30, 2022, and 2021, and the related interim condensed consolidated disclosures are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended, or the Securities Act. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring accruals that the Company believes are necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with GAAP. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Foreign Currency

The functional currency of the subsidiaries is the local currency. The assets and liabilities of the subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date, with the resulting translation adjustments recorded to a separate component of accumulated other comprehensive loss within stockholders’ equity. Income and expense accounts are translated at average exchange rates during the period. Foreign currency transaction gains and losses resulting from transactions denominated in a currency other than the functional currency are recognized in the condensed consolidated statements of operations. For the three and nine months ended September 30, 2022, and 2021, foreign currency transaction gains and losses were immaterial.

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Restricted Cash

Restricted cash consists of payroll withholding related to the Company's enrollment in certain voluntary disability insurance plan. Restricted cash balance was $0.3 million and $0.1 million as of September 30, 2022, and December 31, 2021, respectively, which was included in other assets in the accompanying condensed consolidated balance sheets.

Non-Marketable Securities

The Company acquires certain equity investments in private companies to promote business and strategic objectives. The Company's investments in non-marketable equity securities do not give the Company the ability to control or exercise significant influence over the investee. The Company's non-marketable equity and other related investments totaled $20.8 million and $39.4 million as of September 30, 2022, and December 31, 2021, respectively, and are included in other assets, net on the accompanying condensed consolidated balance sheets. Non-marketable securities are subject to periodic impairment reviews and adjustments for observable price changes from orderly transactions. The Company's evaluation of impairment of such non-marketable securities is based on adverse changes in market conditions and the regulatory or economic environment, qualitative and quantitative analysis of the operating performance of the investee; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. Pursuant to one of the investments in non-marketable securities purchased by the Company, the Company acquired rights to purchase the investee at a pre-determined price subject to additional adjustments based on the performance of the investee, on or before December 31, 2022. In September 2022, the Company decided not to exercise such rights to purchase the investee and recorded an impairment of $5.3 million for the three and nine months ended September 30, 2022 based on an independent third-party valuation, which has been included in other income (expense) on the accompanying condensed consolidated statements of operations. No other impairment or downward adjustments to the carrying value of non-marketable securities have been previously recorded. In July 2022, one of the investees completed its initial public offering, or IPO, subsequent to which, the Company started to account for the investment in the investee at fair value on a recurring basis (see Note 5, Fair Value Measurements, Cash Equivalents and Marketable Securities).

Concentration of Risk

The Company is subject to credit risk from its portfolio of cash equivalents held at one commercial bank and investments in marketable debt securities. The Company limits its exposure to credit losses by investing in money market funds through a U.S. bank with high credit ratings. The Company’s cash may consist of deposits held with banks that may at times exceed federally insured limits, however, its exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the condensed consolidated balance sheets. The Company performs evaluations of the relative credit standing of these financial institutions to limit the amount of credit exposure.

The Company also invests in investment-grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, investment type and issuer, as a result, the Company is not exposed to any significant concentrations of credit risk from these financial instruments.

The Company is subject to credit risk from its accounts receivable. The majority of the Company’s accounts receivable arises from the provision of precision oncology services, and development services and other, primarily with biopharmaceutical companies and international laboratory partners, all of which have high credit ratings. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. Accounts receivable are recorded at net amount.

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A significant customer is any biopharmaceutical customer, clinical testing payer, or international laboratory partner that represents 10% or more of the Company’s total revenue or accounts receivable balance. Revenue attributable to each significant customer, including its affiliated entities, as a percentage of the Company’s total revenue, for the respective period, and accounts receivable balance attributable to each significant customers, including its affiliated entities, as a percentage of the Company’s total accounts receivable balance, at the respective condensed consolidated balance sheet date, are as follows:

	Revenue								Accounts Receivable, Net
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30, 2022		December 31, 2021
	2022		2021		2022		2021
	(unaudited)								(unaudited)
Customer A	30	%	31	%	30	%	28	%	11	%	13	%
Customer B	*		*		*		*		*		10	%
Customer C	*		*		*		*		*		13	%
Customer D	*		*		*		*		10	%	*
Customer E	*		*		*		*		11	%	*

*    less than 10%

The Company is also subject to credit risk from its other receivables and other assets. The Company's other receivables and other assets include payments due from a third-party in relation to the settlement of a patent dispute reached in August 2020 for $8.0 million payable over a period of 6 years. In December 2020, the Company received the first installment payment of $1.0 million, and in December 2021, the Company received the second installment payment of $1.1 million. The Company has evaluated and recorded a credit loss for the remaining $5.9 million considering the third-party's credit worthiness and lack of financial history.

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The following table presents the receivable and the related credit loss amounts:

	September 30, 2022		December 31, 2021
	(unaudited)
	(in thousands)
Prepaid expenses and other current assets:
Gross Amount	$	1,100	$	—
Allowance for Credit Losses	(1,100)		—
Net Amount	$	—	$	—
Other assets:
Gross Amount	$	4,800	$	5,900
Allowance for Credit Losses	(4,800)		(5,900)
Net Amount	$	—	$	—

There were no activities for the allowance for credit losses during the three months ended September 30, 2022 and 2021. The following table summarizes the allowance for credit losses activities for the nine months ended September 30, 2022 and 2021:

	Nine Months Ended September 30,
	2022		2021
	(unaudited)
	(in thousands)
Prepaid expenses and other current assets:
Allowance for credit losses—Beginning of period	$	—	$	—
Reclassification	1,100		1,100
Allowance for credit losses—End of period	$	1,100	$	1,100
Other assets:
Allowance for credit losses—Beginning of period	$	5,900	$	7,000
Reclassification	(1,100)		(1,100)
Allowance for credit losses—End of period	$	4,800	$	5,900

Accounts Receivable, Net

Accounts receivable represent valid claims against commercial and governmental payers, biopharmaceutical companies, research institutes, international laboratory partners and distributors, including unbilled receivables, and royalty payments due from third parties for licensing the Company’s technologies. Unbilled receivables include balances due from biopharmaceutical customers related to development services and other revenues that are recognized upon the achievement of performance-based milestones but prior to the achievement of contractual billing rights. As of September 30, 2022, and December 31, 2021, the Company had unbilled receivables of $5.1 million and $5.7 million, respectively.

The Company evaluates the collectability of its accounts receivable based on historical collection trends, the financial condition of payment partners, and external market factors and provides for an allowance for potential credit losses based on management’s best estimate of the amount of probable credit losses. As of September 30, 2022, and December 31, 2021, the Company had immaterial allowance for credit losses related to its accounts receivable.

Asset Acquisition

If an acquisition of an asset or group of assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition rather than a business combination. An asset acquisition does not result in the recognition of goodwill and transaction costs are capitalized as part of the cost of the asset or group of assets acquired. Transaction costs allocated to in-process research and development technology with no future alternate use is expensed as incurred. The total consideration is allocated to the various intangible assets acquired on a relative fair value basis. Cash paid in connection of purchase of in-process research and development technology in an asset acquisition is presented within the investing section of the condensed consolidated statement of cash flows.

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Goodwill and Intangible Assets, net

Intangible assets related to in-process research and development costs, or IPR&D, acquired in a business combination are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. Prior to completion of the research and development efforts, the assets are considered indefinite-lived. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts. In connection with the launch of Shield LDT in May 2022, the Company's IPR&D of $1.6 million was reclassified as an intangible asset with a useful life of 2 years.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Goodwill is not amortized but is tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate its value may no longer be recoverable. The Company continues to operate in one segment, which is considered to be the sole reporting unit and, therefore, goodwill is tested for impairment at the enterprise level. As of September 30, 2022, there has been no impairment of goodwill.

Intangible assets are carried at cost, net of accumulated amortization. The Company does not have intangible assets with indefinite useful lives other than goodwill. Amortization is recorded on a straight-line basis over the intangible asset's useful life, which is approximately 2—12 years.

Post-acquisition Contingent Consideration

Post-acquisition contingent consideration is recognized over the service period, subject to meeting the respective service requirements and performance metrics. For the three and nine months ended September 30, 2022, the Company recorded post-acquisition contingent consideration expense of $0.4 million and $2.7 million, respectively, in research and development expenses on the Company's condensed consolidated statement of operations. The Company did not record any post-acquisition contingent consideration expense for the three and nine months ended September 30, 2021.

Leases

The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use, or ROU, assets and operating leases liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received or receivable. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities, as the Company's leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s facility leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with terms of 12 months or less.

Convertible Senior Notes

Upon early adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on January 1, 2021, the Company reclassified the carrying amount of the equity component of the cash conversion feature including the allocated debt issuance costs from additional paid-in capital to convertible senior notes, net. Convertible senior notes are accounted for as a liability and measured at their amortized cost. Transaction costs related to the issuance of the notes are netted with the liability and are amortized to interest expense over the term of the notes, using an effective interest rate method.

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Revenue Recognition

The Company derives revenue from the provision of precision oncology testing services, as well as from development services and other. Precision oncology testing services include genomic profiling and the delivery of other genomic information derived from the Company’s platform. Development services include companion diagnostic development and regulatory approval, clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect and GuardantINFORM. Other revenue includes amounts derived from licensing the Company's technology, and kit fulfillment. The Company currently receives payments from third-party commercial and governmental payers, certain hospitals and oncology centers and individual patients, as well as biopharmaceutical companies, research institutes, international laboratory partners and distributors.

Revenues are recognized when control of services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. ASC 606 provides for a five-step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation.

Precision oncology testing

The Company recognizes revenue from the sale of its precision oncology tests for clinical customers, including certain hospitals, cancer centers, other institutions and patients, at the time results of the test are reported to physicians. Most precision oncology tests requested by clinical customers are sold without a written agreement; however, the Company determines an implied contract exists with its clinical customers. The Company identifies each sale of its test to a clinical customer as a single performance obligation. With the exception of certain limited contracted arrangements with insurance carriers and other institutions where the transaction price is fixed, a stated contract price does not exist and the transaction price for each implied contract with clinical customers represents variable consideration. The Company estimates the variable consideration under the portfolio approach and considers the historical reimbursement data from third-party commercial and governmental payers and patients, as well as known or anticipated reimbursement trends not reflected in the historical data. The Company monitors the estimated amount to be collected in the portfolio at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the estimate and any subsequent revision contain uncertainty and require the use of significant judgment in the estimation of the variable consideration and application of the constraint for such variable consideration. The Company analyzes its actual cash collections over the expected reimbursement period and compares it with the estimated variable consideration for each portfolio and any difference is recognized as an adjustment to estimated revenue after the expected reimbursement period, subject to assessment of the risk of future revenue reversal. For the three months ended September 30, 2022, and 2021, the Company recorded $1.9 million and $3.2 million as revenue, respectively, resulting from cash collections exceeding the estimated variable consideration related to samples processed in previous periods, including revenue received from successful appeals of reimbursement denials, net of recoupments. For the nine months ended September 30, 2022, and 2021, the Company recorded $4.7 million and $17.8 million as revenue, respectively, resulting from cash collections exceeding the estimated variable consideration related to samples processed in previous periods, including revenue received from successful appeals of reimbursement denials, net of recoupments.

Revenue from sales of precision oncology tests to biopharmaceutical customers are based on a negotiated price per test or on the basis of an agreement to provide certain testing volume over a defined period. The Company identifies its promise to transfer a series of distinct tests to biopharmaceutical customers as a single performance obligation. Precision oncology tests to biopharmaceutical customers are generally billed at a fixed price for each test performed. For agreements involving testing volume to be satisfied over a defined period, revenue is recognized over time based on the number of tests performed as the performance obligation is satisfied over time. Results of the Company’s precision oncology services are delivered electronically, and as such there are no shipping or handling fees incurred by the Company or billed to customers.

Development services and other

The Company performs development services for its biopharmaceutical customers utilizing its precision oncology information platform. Development services typically represent a single performance obligation as the Company performs a significant integration service, such as analytical validation and regulatory submissions. The individual promises are not separately identifiable from other promises in the contracts and, therefore, are not distinct. However, under certain contracts, a biopharmaceutical customer may engage the Company for multiple distinct development services which are both capable of being distinct and separately identifiable from other promises in the contracts and, therefore, distinct performance obligations.

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The Company collaborates with biopharmaceutical companies in the development of new drugs. As part of these collaborations, the Company provides services related to regulatory filings to support companion diagnostic device submissions for the Company’s testing panels. Under these collaborations, the Company generates revenue from achievement of milestones, as well as provision of on-going support. For the companion diagnostic development and regulatory approval services performed, the Company is compensated through a combination of an upfront fee and performance-based, non-refundable regulatory and other developmental milestone payments. The transaction price of these contracts typically represents variable consideration. Application of the constraint for variable consideration to milestone payments is an area that requires significant judgment. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be managed to achieve the respective milestone and the level of effort and investment required to achieve the respective milestone. In making this assessment, the Company considers its historical experience with similar milestones, the degree of complexity and uncertainty associated with each milestone, and whether achievement of the milestone is dependent on parties other than the Company. The constraint for variable consideration is applied such that it is probable a significant reversal of revenue will not occur when the uncertainty associated with the contingency is resolved. Application of the constraint for variable consideration is assessed and updated at each reporting period as a revision to the estimated transaction price.

The Company recognizes companion diagnostic development and regulatory approval services revenue over the period in which biopharmaceutical research and development services are provided. Specifically, the Company recognizes revenue using an input method to measure progress, utilizing costs incurred to-date relative to total expected costs as its measure of progress. The Company assesses the changes to the total expected cost estimates as well as any incremental fees negotiated resulting from changes to the scope of the original contract in determining the revenue recognition at each reporting period. For development of new products or services under these arrangements, costs incurred before technological feasibility is reached are included as research and development expenses in the Company’s condensed consolidated statements of operations, while costs incurred thereafter are recorded as cost of development services and other.

The Company also recognizes revenue from other development services, in addition to companion diagnostic development and regulatory approval services noted above, such as clinical study setup, monitoring and maintenance, testing development and support, GuardantConnect, and GuardantINFORM. These revenues are generally recognized over time based on an input method to measure progress in the period when the associated services have been performed.

In addition, other revenue includes amounts derived from licensing the Company's digital sequencing technology to its domestic customers and international laboratory partners, and kit fulfillment. For the licensed technology, the Company is compensated through royalty-based payments, non-refundable upfront payments, guaranteed minimum payments, and/or sample milestone payments. Depending on the nature of the technology licensing arrangements, these revenues are recognized in the period when royalty-bearing sales occur, when the technology transfer is complete, or during the technology transfer period. Kit fulfillment related revenues are recognized when such products are delivered.

Contracts with multiple performance obligations

Contracts with biopharmaceutical customers and international laboratory partners may include multiple distinct performance obligations, such as provision of precision oncology testing, the above-mentioned development services, and digital sequencing technology licensing, among others. The Company evaluates the terms and conditions included within its contracts with biopharmaceutical customers and international laboratory partners to ensure appropriate revenue recognition, including whether services are considered distinct performance obligations that should be accounted for separately versus together. The Company first identifies material promises, in contrast to immaterial promises or administrative tasks, under the contract, and then evaluates whether these promises are both capable of being distinct and distinct within the context of the contract. In assessing whether a promised service is capable of being distinct, the Company considers whether the customer could benefit from the service either on its own or together with other resources that are readily available to the customer, including factors such as the research, development, and commercialization capabilities of a third party as well as the availability of the associated expertise in the general marketplace. In assessing whether a promised service is distinct within the context of the contract, the Company considers whether it provides a significant integration of the services, whether the services significantly modify or customize one another, or whether the services are highly interdependent or interrelated.

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For contracts with multiple performance obligations, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines standalone selling price by considering the historical selling price of these performance obligations in similar transactions as well as other factors, including, but not limited to, the price that customers in the market would be willing to pay, competitive pricing of other vendors, industry publications and current pricing practices, and expected costs of satisfying each performance obligation plus appropriate margin; or by using the residual approach if standalone selling price is not observable, by reference to the total transaction price less the sum of the observable standalone selling prices of other performance obligations promised in the contract.

Deferred revenue

Deferred revenue, which is a contract liability, consists primarily of payments received in advance of revenue recognition from contracts with customers. For example, development services and other contracts with biopharmaceutical customers often contain upfront payments which results in the recording of deferred revenue to the extent cash is received prior to the Company's performance of the related services. Contract liabilities are relieved as the Company performs its obligations under the contract and revenue is consequently recognized. As of September 30, 2022, the deferred revenue balance was $15.4 million, of which $2.0 million is considered long-term and was recorded within other long-term liabilities on the accompanying condensed consolidated balance sheets. As of December 31, 2021, the deferred revenue balance was $11.3 million. Revenue recognized in the nine months ended September 30, 2022 that was included in the deferred revenue balance as of December 31, 2021 was $7.7 million, and revenue recognized in the nine months ended September 30, 2021 that was included in the deferred revenue balance as of December 31, 2020 was $8.0 million, respectively.

Transaction price allocated to the remaining performance obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and non-cancelable amounts that will be invoiced and recognized as revenues in future periods. The Company expects to recognize substantially all of the remaining transaction price in the next 1-2 years.

Costs of Precision Oncology Testing

Cost of precision oncology testing generally consists of cost of materials, cost of labor, including bonus, benefit, and stock-based compensation, equipment and infrastructure expenses associated with processing test samples (including sample accessioning, library preparation, sequencing, and quality control analyses), freight, curation of test results for physicians, phlebotomy, and license fees due to third parties. Infrastructure expenses include depreciation of laboratory equipment, lease costs, amortization of leasehold improvements, and information technology costs. Costs associated with performing the Company’s tests are recorded as the tests are performed regardless of whether revenue was recognized with respect to that test. Royalties for licensed technology calculated as a percentage of revenues generated using the associated technology are recorded as expense at the time the related revenues are recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the applicable patent rights.

Cost of Development Services and Other

Cost of development service and other primarily includes costs incurred for the performance of development services requested by the Company’s biopharmaceutical customers and other revenues included as noted above. For development of new products, costs incurred before technological feasibility has been achieved are reported as research and development expenses, while costs incurred thereafter are reported as cost of development services and other.

Research and Development Expenses

Research and development expenses are comprised of costs incurred to develop technology and include compensation and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services and other outside costs. Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop the Company’s technology capabilities are recorded as research and development unless they meet the criteria to be capitalized as internal-use software costs.

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Stock-Based Compensation

Stock-based compensation related to stock options granted to the Company’s employees, directors and nonemployees is measured at the grant date based on the fair value of the award. The fair value is recognized as expense over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for stock options with performance metrics is calculated based upon expected achievement of the metrics specified in the grant.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted under the 2012 Stock Plan and the 2018 Incentive Award Plan, and stock purchase rights granted under the 2018 Employee Stock Purchase Plan. The Black-Scholes option-pricing model requires assumptions to be made related to the expected term of an award, expected volatility, risk-free rate and expected dividend yield. Forfeitures are accounted for as they occur.

For market-based restricted stock units, the Company derives the requisite service period using the Monte Carlo simulation model and the related compensation expense is recognized over the derived service period using an accelerated attribution model commencing on the grant date. Stock-based compensation expense will be recorded regardless of whether the market conditions are achieved or not. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense will be accelerated, and a cumulative catch-up expense will be recorded during the period in which the market condition is met.

The Company measures the grant date fair value of its service-based and performance-based restricted stock units issued to employees based on the closing market price of the common stock on the date of grant. For restricted stock units with only service-based vesting conditions, compensation expense is recognized in the Company’s condensed consolidated statement of operations on a straight-line basis over the requisite service period. Compensation expense for restricted stock units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, and is recognized in the Company’s condensed consolidated statement of operations using an accelerated attribution model over the requisite service period for each separately vesting portion of the award.

Net Loss Per Share Attributable to Common Stockholders

The Company calculates basic net loss per share attributable to common stockholders by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period determined using the treasury stock method or the as-if converted method, as appropriate. For purposes of this calculation, stock options, restricted stock units, shares issuable pursuant to the employee stock purchase plan, shares subject to repurchase from early exercised options and contingently issuable shares under the convertible senior notes are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is anti-dilutive.

3.    Joint Venture

In May 2018, the Company and an affiliate of SoftBank formed and capitalized the Joint Venture for the sale, marketing and distribution of the Company’s tests in all areas worldwide, outside of North America, Central America, South America, the United Kingdom, all other member states of the European Union as of May 9, 2017, Iceland, Norway, Switzerland and Turkey. The Company expects to rely on the Joint Venture to accelerate commercialization of its products in Asia, the Middle East and Africa.

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Under the terms of the joint venture agreement, the Company paid $9.0 million for 40,000 shares of common stock, or 50% ownership interest, of the Joint Venture, and the affiliate of SoftBank contributed $41.0 million for 40,000 shares of common stock, or the other 50% ownership interest, of the Joint Venture. In June 2020, an amended and restated certificate of incorporation of the Joint Venture, as approved by the board of directors of the Joint Venture, was filed with the Secretary of State of the State of Delaware. The amended and restated certificate of incorporation, among other things, increased the number of authorized shares of common stock to 89,000,000 shares consisting of 80,000,000 shares of Class A common stock and 9,000,000 shares of Class B (non-voting) common stock; and authorized 80,000,000 shares of Series A preferred stock. Pursuant to the amended and restated certificate of incorporation, each share of common stock held by the Company and the affiliate of SoftBank was reclassified and exchanged for 1,000 shares of Series A preferred stock. As a result, each of the Company and the affiliate of SoftBank held 40,000,000 shares of Series A preferred stock. The holders of Series A preferred stock were entitled to receive dividends at the rate of $0.05 per share if and when declared by the board of directors of the Joint Venture. In June 2020, the board of directors of the Joint Venture authorized the adoption of the Joint Venture’s 2020 Equity Incentive Plan pursuant to which 4,595,555 shares of Class B common stock have been reserved for issuance. As of September 30, 2022, and December 31, 2021, 2,654,053 and 602,408 shares of Class B common stock have been issued and outstanding, respectively, and no shares of Class A common stock have been issued and outstanding. As of September 30, 2022, and December 31, 2021, 80,000,000 shares of Series A preferred stock have been issued and outstanding.

Prior to the completion of the Joint Venture Acquisition, under the terms of the joint venture agreement, neither party was obligated to make any further capital contribution, in cash or otherwise, to the Joint Venture. The Joint Venture was deemed to be a VIE, and the Company had been identified as the VIE’s primary beneficiary. As the primary beneficiary, the Company had consolidated the financial position, results of operations and cash flows of the Joint Venture in its financial statements and all intercompany balances had been eliminated in consolidation.

Prior to November 2021, the noncontrolling interest held by SoftBank contained embedded put-call redemption features that were not solely within the Company’s control and had been classified outside of permanent equity in the consolidated balance sheets. The put-call feature embedded in the redeemable noncontrolling interest did not require bifurcation as it did not meet the definition of a derivative and was considered to be clearly and closely related to the redeemable noncontrolling interest. The Company elected to recognize the changes in redemption value immediately as they occur as if the put-call redemption feature were exercisable at the end of the reporting period. The carrying value of the redeemable noncontrolling interest was first adjusted for the earnings or losses attributable to the redeemable noncontrolling interest based on the percentage of the economic or ownership interest retained in the consolidated VIE by the noncontrolling parties, and then adjusted to equal to its redemption amount, or the fair value of the noncontrolling interest held by SoftBank, as if the redemption occurred at the end of the reporting date. The adjustment of redeemable noncontrolling interest was recorded as an adjustment to net loss attributable to Guardant Health, Inc. common stockholders in the Company's condensed consolidated statement of operations.

In November 2021, the Company exercised its call right contained in the joint venture agreement with SoftBank to purchase all of the shares held by SoftBank and its affiliates in consideration for the payment of the aggregate purchase price to be determined based on an independent third-party valuation. Upon the Company's exercise of the call right in November 2021, SoftBank no longer had the option to exercise its put right. In connection with exercising the call right, the Company reclassified $78.0 million from redeemable noncontrolling interest to noncontrolling interest liability.

In June 2022, the Company purchased all of the shares held by SoftBank and its affiliates in consideration for a cash payment of the aggregate purchase price of $177.8 million, which resulted in $99.8 million of fair value adjustments to the noncontrolling interest liability for the nine months ended September 30, 2022.

As of December 31, 2021, the Company's consolidated balance sheet included $20.4 million of assets, that can be used only to settle obligations of the consolidated VIE and VIE’s subsidiaries, and $4.3 million of liabilities of the consolidated VIE and VIE’s subsidiaries, for which their creditors do not have recourse to the general credit of the Company. As of September 30, 2022, Guardant Health AMEA, Inc. was no longer a VIE, as the Company completed the Joint Venture Acquisition in June 2022.

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4.     Condensed Consolidated Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consist of the following:

	September 30, 2022		December 31, 2021
	(unaudited)
	(in thousands)
Machinery and equipment	$	88,489	$	63,022
Leasehold improvements	99,370		38,702
Computer hardware	28,147		16,685
Construction in progress(1)	20,482		55,873
Furniture and fixtures	8,358		3,683
Computer software	1,784		1,320
Property and equipment, gross	$	246,630	$	179,285
Less: accumulated depreciation	(78,623)		(54,824)
Property and equipment, net	$	168,007	$	124,461

(1)    As of September 30, 2022, and December 31, 2021, $2.6 million and $45.8 million of construction in progress was related to leasehold improvements, furniture and equipment for the office in Palo Alto, California, respectively. Starting from February 2022, part of the Palo Alto office has been put in service and related construction in progress has been transferred to fixed assets.

Depreciation expense related to property and equipment was $9.1 million and $5.0 million for the three months ended September 30, 2022, and 2021, respectively, and $23.9 million and $14.6 million for the nine months ended September 30, 2022, and 2021, respectively.

Accrued Expenses

Accrued expenses consist of the following:

	September 30, 2022	December 31, 2021
	(unaudited)
	(in thousands)
Operating lease liabilities	$